Narrowing the digital divide: The growth and distributional effect of internet use on income in rural China

Improving income and equality among rural residents remain significant concerns for economists and policymakers. The recent proliferation of information and communication technologies, such as the Internet, provides a promising way to increase income but leads to concern about the digital divide. Notably, data limitations and regional heterogeneity have restricted empirical studies from determining the growth and distributional effects of Internet penetration on the income of rural households, and how these effects correlate with the first-(physical access), second-(use patterns and skills), and third-(use outcomes) level digital divides. This paper empirically investigates the causal effect of Internet use on rural household income by employing the difference-in-difference, propensity score matching, and instrumental variables methods, using panel data from the China Family Panel Studies between 2010 and 2018. We find robust results that Internet use significantly increases the income of rural households, which means the presence of the first-level digital divide exacerbates inequality, although it is narrowing. Additionally, different Internet use purposes that correspond to the second-level digital divide also have an impact on income. Interestingly, our analysis for heterogeneity reveals that rural households with lower education levels and incomes, and those residing in less-developed areas benefit more from Internet use, suggesting no significant third-level digital divide was found between vulnerable populations and those who are not. Overall, these findings have important policy implications. Providing communication infrastructure and popularizing Internet-use skills in rural areas may help narrow the digital divide and advance the goal of inclusive growth.